Landlord and tenant — Sublessee’s application for relief from forfeiture — Effect on business premises subject to Part II of the Landlord and Tenant Act 1954 of section 146(4) of the Law of Property Act 1925 — In present case the contractual term of the sublease had already expired before the application for relief came before the court — Judge at first instance held that in view of this the court had no jurisdiction to grant relief — Court of Appeal held that judge was wrong — Meaning of provision in section 146(4) that the court cannot, on an application by a sublessee for relief from forfeiture, grant ‘any longer term than he had under his original sublease’ — Judge had not given effect to the provision in section 24(1) of the 1954 Act which continued the original tenancy until properly terminated in accordance with that Act — Immediately before the forfeiture the sublessee, although his contractual term had expired, had his tenancy continued by virtue of the Act — Accordingly the court had jurisdiction to make a vesting order for a new term of appropriate duration, but within the limits of the extension imposed by that Act — Appeal allowed on the issue of jurisdiction — Court to hear argument on the question of discretion, which was not considered by the judge below
This was an
appeal from a decision of Sir Neil Lawson, sitting as an additional judge of
the Queen’s Bench Division. The appeal was from the dismissal of an application
by the third defendants, Chesham Property Overseas Ltd, for relief against
forfeiture, in an action brought by The Hon C G J Cadogan against a Mr Dimovic
and a Mr Riley, lessees of premises at 28, 29 and 30 Cadogan Place and 8 and 10
Cadogan Lane, London SW1. The application was by the sublessee of part of the
premises following the forfeiture of the lease.
J G Boggis
(instructed by Lieberman Leigh & Co) appeared on behalf of the appellants;
William Poulton (instructed by Lee & Pembertons) represented the
respondent.
Giving the
first judgment at the invitation of Waller LJ, Fox LJ said: This case is
concerned with an application by a sublessee for relief from forfeiture
consequent upon the forfeiture of the superior lease. It raises a question as
to the effect, in relation to business premises, of section 146(4) of the Law
of Property Act 1925.
By a lease
(‘the lease’) dated April 26 1950 and made between Earl Cadogan of the first
part, Cadogan Settled Estates Co of the second part and Chesham Property
Company Ltd of the third part Earl Cadogan and the Cadogan Settled Estates Co
demised to the lessee 28, 29 and 30 Cadogan Place and 8 and 10 Cadogan Lane,
London, for 48 3/4 years from March 25 1947 at a rental of £1,200 per year. The
lease contained covenants by the lessee for the repair and maintenance of the
premises with a proviso for re-entry in the event of any breach of any of the
covenants.
Subsequently,
the reversion expectant upon the determination of the term created by the lease
became vested in the plaintiff; and the term itself became vested in the
defendants, Messrs Dimovic and Riley.
In an
agreement dated January 14 1976, and made between the defendants of the one
part and Chesham Property Overseas Ltd (‘Chesham’) of the other part, a portion
of the basement of the Cadogan Place premises (‘the basement’) was sublet to
Chesham for seven years commencing January 1 1976, and expiring on December 31
1982. The underlease contained an option to renew for a further term of five
years. That option was never exercised.
On June 17
1981 the plaintiff instituted the present action against the defendants for
forfeiture of the lease by reason of breach of the repairing covenants.
On October 12
1981 the plaintiff obtained judgment for possession of the property comprised
in the lease. In July 1982 an application by the second defendant for relief
from forfeiture was dismissed.
On September
14 1982 Chesham issued a summons for an order under section 146(4) of the Law
of Property Act 1925, vesting the basement in Chesham upon such terms and
conditions as the court should think fit. At all times since June 17 1981
Chesham has been in possession of the basement and has conducted a business
there.
At this point
it will be convenient if I refer to the relevant statutory provisions.
Law of
Property Act 1925. Section 146(4):
Where a
lessor is proceeding by action or otherwise to enforce a right of re-entry or
forfeiture under any covenant, proviso, or stipulation in a lease, or for
non-payment of rent, the court may, on application by any person claiming as
underlessee any estate or interest in the property comprised in the lease or
any part thereof, either in the lessor’s action (if any) or in any action
brought by such person for that purpose, make an order vesting, for the whole
term of the lease or any less term, the property comprised in the lease or any
part thereof in any person entitled as underlessee to any estate or interest in
such property upon such conditions as to execution of any deed or other
document, payment of rent, costs, expenses, damages, compensation, giving
security, or otherwise, as the court in the circumstances of each case may
think fit, but in no case shall any such underlessee be entitled to require a
lease to be granted to him for any longer term than he had under his original
sublease.
Landlord
and Tenant Act 1954. Section 24:
(1) A tenancy to which this Part of this Act
applies shall not come to an end unless terminated in accordance with the
provisions of this Part of this Act; and, subject to the provisions of section
29 of this Act, the tenant under such a tenancy may apply to the court for a
new tenancy — (a) if the landlord has given notice under section 25 of this Act
to terminate the tenancy, or (b) if the tenant has made a request for a new
tenancy in accordance with section 26 of this Act. (2) The last foregoing
subsection shall not prevent the coming to an end of a tenancy by . . .
surrender or forfeiture or by the forfeiture of a superior tenancy.
Section 25:
(1) The landlord may terminate a tenancy to which
this Part of this Act applies by a notice given to the tenant in the prescribed
form specifying the date at which the tenancy is to come to an end (hereinafter
referred to as ‘the date of termination’): Provided that this subsection has effect
subject to the provisions of Part IV of this Act as to the interim continuation
of tenancies pending the disposal of applications to the court. (2) Subject to
the provisions of the next following subsection, a notice under this section
shall not have effect unless it is given not more than 12 nor less than 6
months before the date of termination specified therein. (3) In the case of a
tenancy which apart from this Act could have been brought to an end by notice
to quit given by the landlord — (a) the date of termination specified in a
notice under this section shall not be earlier than the earliest date on which
apart from this Part of this Act the tenancy could have been brought to an end
by notice to quit given by the landlord on the date of the giving of the notice
under this section . . .
Section 26:
This deals with a tenant’s request for a new tenancy.
Section 64:
(1) In any case where — (a) a notice to terminate
a tenancy has been given under Part I or Part II of this Act or a request for a
new tenancy has been made under Part II thereof, and (b) an application to the
court has been made under the said Part I or the said Part II, as the case may
be, and (c) apart from this section the effect of the notice or request would
be to terminate the tenancy before the expiration of the period of three months
beginning with the date on which the application is finally disposed of, the
effect of the notice or request shall be to terminate the tenancy at the
expiration of the said period of three months and not at any other time.
Chesham’s
application for relief under section 146(4) of the Law of Property Act was
heard by Sir Neil Lawson sitting as an additional judge of the Queen’s Bench
Division on October 31 1983. He dismissed the application. It was submitted on
behalf of Chesham that because Chesham continued to occupy the premises for
business purposes down to December 31 1982, and the plaintiff had not by that
date re-entered, the Landlord and Tenant Act 1954 applied, and Chesham were
entitled to a new lease. The judge rejected that contention. He held that
section 146(4) prevents the grant of a lease for a longer term than the
applicant originally had under the sublease; and that term had already expired
on December 31 1982.
He held
further that the provisions of the Landlord and Tenant Act 1954 did not assist
Chesham in view of the provisions of section 24(2) of the Act, that section
24(1) shall ‘not prevent the coming to an end of a tenancy by . . . forfeiture
or a superior tenancy’. The judge also rejected an argument based on the
decision of Megarry V-C in Meadows v Clerical, Medical & General
Life Assurance Society [1981] Ch 70 on the ground that Meadows was
the case of a tenancy (not a subtenancy) which had been forfeited so that the
tenant had the right to apply for relief by way of restoration of the old
tenancy, whereas Chesham (being a subtenant) could only apply for a vesting
order of what is, in fact, a new tenancy; Chesham had no right to ask
for its old tenancy back. The old tenancy therefore had come to an end and
there was nothing upon which the 1954 Act could operate.
Now section
146(4) of the 1925 Act in the case of the forfeiture of an underlease in
consequence of the superior tenancy having been forfeited confers upon the
court jurisdiction to make an order vesting ‘for the whole of the term of the
lease [ie the superior tenancy] or any less term, the property comprised in the
lease or any part thereof in any person entitled as underlessee . . . but in no
case shall any such underlessee be entitled to require a lease to be granted to
him for any longer term than he had under his original sublease’.
It is evident
from these provisions that the new sublease is not merely a restoration of the
old one. It is a new grant. The parties, the term and the other provisions may
be different from those of the forfeited subtenancy (see Chelsea Estates
Investment Trust Co Ltd v Marche [1955] Ch 328). The new lease is
therefore a quite distinct piece of property from the old, and in this respect
the position of a sublessee is different from that of a lessee under section
146(2).
It is settled
law that a lease, as a grant, takes effect only from the date of delivery (see Roberts
v Church Commissioners for England [1972] 1 QB 278 at p 282 per Russell
LJ and at p 285 per Stamp LJ). If, for example, a lease of January 1 1984 is
expressed to grant a term of years from June 30 1983, the document is
inoperative to create any term in respect of the period prior to January 1
1984.
Section 146(4)
of the 1925 Act prohibits the grant of any longer term than the sublessee ‘had
under his original sublease’. If that refers to the contractual term specified
in the sublease, the court, in my view, has no jurisdiction to make any vesting
order in this case since the original term expired on December 31 1982 and the
court cannot grant a term in respect of any period prior to the date of the
order. But, in any event, it is difficult to see how the court could make an
order vesting property which, at the date of the order, neither exists nor is
capable of existing, ie a term which ended in December 1982. I should add that
by section 9 of the Law of Property Act 1925, a vesting order operates to
convey a legal estate in the same manner as if the order had been a conveyance.
That, however,
is not the end of the matter. The fundamental question is the meaning in
section 146(4) of the words ‘any longer term than he had under his original
sublease’. In my opinion the words refer to the position immediately before
forfeiture. At that time, it seems to me, Chesham did not merely have a term
which came to an end on December 31 1982. Chesham had a tenancy upon which was
superimposed by law the provisions of Part II of the Landlord and Tenant Act
1954 and all the rights thereby conferred. Those were rights which Chesham held
at the date of forfeiture in consequence and by right of its interest under its
original sublease. The core of the rights conferred by the 1954 Act is the
provision in section 24(1) that a tenancy within Part II of the Act shall not
come to an end unless terminated in accordance with the provisions of the Act.
At the time of the forfeiture, the tenancy granted by the original sublease had
not been terminated in accordance with the provisions of the 1954 Act. The
result is that, immediately before the forfeiture, Chesham was entitled to a
tenancy which would not determine on December 1 1982, but which would continue
until brought to an end under the provisions of the 1954 Act.
It is said, as
I understand it, that the ‘term’ which Chesham ‘had under (its) original
sublease’ has now come to an end and that all that could exist if there had
been no forfeiture is a ‘tenancy’ created by the statute. But what the 1954 Act
provides is that the ‘tenancy’ shall not come to an end save under the
provisions of the Act. The ‘tenancy’ must mean the tenancy created by the
original sublease. If that tenancy had not come to an end it seems to me to be
quite unreal to say that the ‘term’ has come to an end and that there is
nothing upon which section 146(4) could now operate. The fact is that the
estate created by the original sublease would, but for the forfeiture, be
continued under the provisions of the 1954 Act for a period which is clearly
identified by those provisions. There would, therefore, be still in existence
something which could fairly be called a term; in section 146(4) the word is, I
think, used merely to indicate duration. There are not two terms, one created
by the original grant, and upon the expiry of that, a new one created by the
statute. The effect of the statute is that there is simply a continuing term. I
do not think that Factors (Sundries) Ltd v Miller [1952] 2 All ER
630 is inconsistent with that view. The present question did not arise: the
case was concerned with a monthly tenancy and the court made an order under
section 146(4) creating a tenancy for one month.
On behalf of
Chesham some reliance was placed upon the decision in Meadows v Clerical,
Medical & General Life Assurance Society (supra). That again did not
raise the issue in the present case. It was concerned with a forfeiture of a
sublease by the sublessor and the question was whether, pending determination
of an application for relief, the sublessee could properly issue a summons
under Part II of the Landlord and Tenant Act 1954 against the superior landlord
for the grant of a new lease under the 1954 Act.
The result, in
my view, is that, but for the forfeiture, the tenancy would have continued
under the 1954 Act until it came to an end under the provisions of that Act. In
my view, therefore, the court has jurisdiction under section 146(4) of the 1925
Act to make a vesting order for a new term of appropriate duration but within
the limits of the extension imposed by the 1954 Act. I do not reach that result
with any regret. The contrary result could, I think, only have been the
consequence of a lacuna in the legislation. I see no reason, in principle, to
suppose it could have been intended. In general the purpose of section 146(4)
must be to enable the court, if it thinks fit,
included the protection given by the 1954 Act without which his situation would
be wholly changed.
I do not at
all lose sight of the provisions of section 24(2) of the 1954 Act. But the
references there to forfeiture must mean an absolute forfeiture against which
relief has not been given.
The question
of jurisdiction being decided, there remains the question whether the court
should exercise its discretion under section 146(4) to make a vesting order.
The judge did not consider that in view of his decision as to jurisdiction. We
shall therefore have to consider the question of discretion after hearing
argument upon it.
Agreeing,
ROBERT GOFF LJ said: I only desire to express my conclusion in my own words
because we are differing from the learned judge.
On July 7 1981
the landlords served on the tenants under the head lease a writ claiming
possession of the demised premises. On October 12 1981 judgment was entered (in
default of defence) for possession, mesne profits, damages, and costs. In these
circumstances, the head lease was forfeited as from the date of service of the
writ; and in consequence, as from the same date, the sublease to Chesham was
also forfeited. The question in this case is whether Chesham can obtain a
vesting under section 146(4) of the Law of Property Act 1925 which has the
effect of granting them a new lease. They can only do it if (1) the court has
jurisdiction, in the circumstances of the present case, to make a vesting
order; and (2) if so, the court can be persuaded to exercise its discretion to
do so.
The judge held
that the court had no jurisdiction to make a vesting order in favour of
Chesham. According to the note of his judgment which has been agreed by counsel
and approved by him, his reasoning was as follows:
(1) Section 24(1) of the Landlord and Tenant Act
1954 (which provides that tenancies to which Part II of that Act applies shall
not come to an end unless terminated in accordance with the provisions of Part
II) did not prevent the sublease from coming to an end by reason of the
forfeiture of the head lease, because section 24(2) provides that subsection
(1) shall not prevent the coming to an end of a tenancy by (inter alia)
the forfeiture of a superior tenancy.
(2) Although Chesham could apply for a vesting
order under section 146(4) of the Act of 1925, the court had no power to make a
vesting order granting a new lease for any longer term than Chesham had under
their original sublease, viz after December 31 1982.
(3) The court could not, after December 31 1982,
make a vesting order granting a new lease to Chesham.
I, for my
part, agree that Chesham’s subtenancy came to an end upon the forfeiture of the
head lease, ie on July 7 1981. It is to be observed that, under section 146(4),
the court’s jurisdiction, in respect of subtenancies, is not to grant relief
against forfeiture (of its jurisdiction under section 146(2)) but to grant a
new lease, no doubt because one of the parties to the new lease will be a
person who was not a party to the original head lease, and because the demised
premises, the term of the lease and the conditions upon which it is held, may
also be different: see Chelsea Estates Investment Trust Co Ltd v Marche
[1955] Ch 328. I also agree that, under section 146(4), a lease cannot be
granted for any longer term than the sublessee had under his original sublease;
and that if, in the present case, that term is to be identified as the
contractual term which would have expired on December 31 1982, the court would
have had no power, after that date, to grant a new lease to Chesham, because a
tenancy ‘cannot take effect as such before the date of execution and delivery
that it bears’ — see Roberts v Church Commissioners for England
[1972] 1 QB 278 at p 282 per Russell LJ, and see also Bradshaw v Pawley
[1980] 1 WLR 10 at p 14, per Sir Robert Megarry V-C.
But the
crucial question in this case is: what was, for the purposes of section 146(4),
the term which Chesham had under their original sublease? This must mean the term which would have
existed but for the forfeiture. In ascertaining that term, I do not consider
that it would be right to ignore the effect of section 24(1) of the Act of 1954.
For the effect of section 24(1) was that the tenancy of Chesham would
not come to an end unless terminated in accordance with the provisions of Part
II of the Act. It must follow, in my judgment, that at the date of forfeiture
the term which Chesham had under their original sublease was the term specified
in the sublease (viz until December 31 1982) plus such further period as might
elapse until the tenancy was brought to an end in accordance with the
provisions of Part II of the Act of 1954. That term had not expired at the date
when the judge made his order in the matter; and it follows that, at that date,
there was no bar to the judge exercising his discretion, if he thought it right
to do so, to make a vesting order under section 146(4), the effect of which was
to grant a new lease to Chesham as from that date.
In his
powerful argument, Mr Poulton, for the landlords, submitted that this was not
correct. He argued that the ‘term’ under the original sublease must be a term
for a fixed period. But Factors (Sundries) Ltd v Miller [1982] 2
All ER 630 shows (although the point in the present case was not there in
issue) that the court is prepared to make a vesting order under section 146(4)
in the case of a periodic tenancy, although the relevant period (there one
month) had expired at the date of the order, and the tenancy would (but for the
forfeiture) have continued indefinitely until determined by notice of the
relevant length. Indeed, the effect of section 24(1) of the Act of 1954 on the
subtenancy in the present case was to produce a term not materially different
from a contractual term for a fixed period and thereafter until determined by
notice of a specified length; and we were told that leases in that form were
fairly common. Mr Poulton also submitted that the term which Chesham had under their
original sublease was simply the term specified in the sublease itself, viz
that which expired on December 31 1982. But in my judgment that submission
ignores the express effect of section 24(1) of the Act of 1954, that the tenancy
(here Chesham’s tenancy under their sublease) shall not come to an end unless
terminated in accordance with the provisions of Part II of the Act.
In the course
of his argument, Mr Boggis, for Chesham, placed reliance on a passage in the
judgment of Sir Robert Megarry V-C in Meadows v Clerical, Medical
& General Life Assurance Society [1981] Ch 70. In that case, the
learned Vice-Chancellor was concerned with the position of a tenant pending the
hearing of his application for relief against forfeiture under section 146(2)
of the Act of 1925. It is well settled that, if a tenant is granted relief
under section 146(2), the effect will be as though the lease was never
forfeited. However, in the course of his judgment, the Vice-Chancellor said (at
pp 76-77):
I do not
think that it matters much whether the form that any relief would take would be
the restoration of the old lease or the grant of a new lease on the terms of
the old: in either case the relief would relate back to the date of the
forfeiture and so produce a tenancy which was within the Act when the
originating summons was issued.
The
Vice-Chancellor was not, however, concerned to consider the problem in the
present case; and I do not think that, had he done so, he would have concluded
that a vesting order made under section 146(4) of the Act of 1925 relates back
to the date of forfeiture. For the vesting order has the effect that a new
lease is granted to the former subtenant, and on the authorities which I have
already referred to, the vesting order cannot take effect to create an interest
in land subsisting before the date upon which the order is made.
I wish to add
that I am glad to be able to reach the conclusion which I have reached in this
case. To hold otherwise would have been to defeat the manifest intention of the
legislature. Indeed, the spectacle of a subtenant promptly issuing his
application for a vesting order under section 146(4), and pursuing his
application with all due diligence, but being deprived the benefit of Part II
of the Landlord and Tenant Act 1954 simply because, for reasons beyond his
control, the matter was not dealt with by the court before the expiry of the
term specified in the sublease, is not one which commends itself; yet such
could have been the effect of Mr Poulton’s argument, if we had felt compelled
to accept it. Of course, if a subtenant does not act promptly in relation to
his application, this may be a matter which can be taken into account by the
court in exercising its discretion under section 146(4); we are not, however,
concerned with any question of discretion at this stage, only with
jurisdiction, and nothing which I have said in this judgment should be
understood as affecting the exercise by the court hereafter of its discretion
in the present case.
WALLER LJ also
agreed and did not add anything.
The appeal
was allowed on the question of jurisdiction. The appellant was awarded costs
before the judge below and before the Court of Appeal.
